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«ATLAS ESTATES LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 Atlas Estates Limited Martello Court Admiral Park St Peter Port ...»

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As a result of these uncertainties and changing conditions, management has taken measures to mitigate risks across the portfolio. This has included reducing costs and staffing levels and putting on hold higher risk investment activity.

Nevertheless, key development projects have been completed on time and as planned and several new developments have commenced.

Markets and Key Properties Poland This is the major market of operation for the Group, with 78% of the Group’s portfolio located there. The Polish economy has been one of the most resilient in Europe with estimated GDP growth of 2.4% in 2012 (4.3% in 2011). There had been significant increases in property prices in previous years. These were reversed in 2009, which showed significant drop in assets values. So far, 2010-2012 have shown a trend of stabilisation at the lower levels of valuations.

Hilton Hotel, Warsaw The Hilton Hotel in the Wola district of Warsaw is the Group’s flagship asset. The hotel’s performance improved in 2012 compared to 2011 and this positive trend is expected to continue.

Platinum Towers With its construction finished, a total of 7 penthouses out of 396 apartments have not been sold as of 31 December

2012. This residential development alongside the Hilton Hotel provides a unique development in the city. The plan is also to build mixed use (residential and office) tower, on the neighbouring plot, which will enhance the attractiveness of this site.

Capital Art Apartments The Capital Art Apartments project in Warsaw is another development in the Wola district of Warsaw close to the city centre. It is a three stage development which will release 708 apartments in the city with parking and amenities, including retail facilities.

With both the first and the second stage completed, the Company has, to date, sold all of the 219 apartments in the first stage, with a further 288 out of 300 apartments in the second stage having been sold. Construction of the third stage, comprising 189 apartments, commenced in the fourth quarter of 2012 and as of 31 December 2012 the Company has pre-sold 42 apartments.

Concept House (previously Cybernetyki) The Concept House project is a development in the Mokotów district of Warsaw. It is a development which will release 160 apartments in the city with parking and amenities, including retail facilities.

The construction of the development commenced in the second quarter of 2011 and as of 31 December 2012 the Company has pre-sold 67 apartments.

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Apartamenty przy Krasińskiego (previously Zielono) Apartamenty przy Krasińskiego project is a development in the Żoliborz district of Warsaw. This development includes 303 apartments in the city with parking as well as amenities, including retail facilities.

The construction of the development commenced in the third quarter of 2011 and as of 31 December 2012 the Company has pre-sold 151 apartments.

Other properties in Poland The Group also owns two investment properties in Poland.

The Millennium Plaza is a 32,700 sqm office and retail building centrally located in Warsaw. During the last years its occupancy increased up to 90% in June 2012, then the occupancy sharply decreased to 68% in December 2012 due to the loss of a major tenant. It is expected that occupancy will gradually increase back to its recorded levels over time.

The Sadowa office is a 6,550 sqm office building in Gdańsk. During the year its occupancy ratios increased from 88% as of 31 December 2011 to 92% as of 31 December 2012.

The Group’s portfolio also contains valuable land assets in Warsaw and Gdańsk.

Hungary In Hungary, the Group’s portfolio is comprised of seven properties, all of which are located in Budapest. Five are income producing assets. One of them – Moszkva office building – has been classified as an asset held for sale – as disclosed in the note 20 of the consolidated financial statements.

The Hungarian economy has suffered from the global credit crisis and lack of liquidity available for development projects.

As a result, Atlas has stopped development activity and has experienced client losses and pricing pressures affecting its income yielding assets. In 2011 GDP in Hungary increased by 1.7% but in 2012 a decline in GDP of 1.7% is expected.

Romania

The Group’s portfolio contains three properties in Romania, including the Golden Tulip Hotel and two significant land banks. The Romanian GDP is expected to increase by 0.9% in 2012 (GDP increase of 2.5% was noted in 2011). In the difficult trading conditions, occupancy rates at the Golden Tulip slightly decreased and amounted to 59% for 2012 (63% for 2011).

Bulgaria The Group holds one rental property in Sofia, which is a ca. 3,500 sqm office building.

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The continual analysis of the economics of the region and the key measures of the sectors in which the Group operates are vital to ensure it does not become over exposed to, or reliant on, any one particular area. AMC evaluates the risks and rewards associated with a particular country, sector or asset class, in order to optimise the Company’s return on investment and therefore the return that the Company is able to deliver to Shareholders over the longer term.

Portfolio valuation and valuation methods





Until the end of 2011 an independent valuation of the entire property portfolio was carried out on a semi-annual basis. In 2012 the Board of Directors resolved undertaking an independent valuation of the entire property portfolio on an annual basis only, while for the semi-annual accounts valuations are performed partially by external experts and partially internally by the Property Manager. At 31 December 2012 an independent valuation of the entire property portfolio was undertaken by Jones Lang LaSalle, acting as independent expert.

Loans As at 31 December 2012, the Company’s share of bank debt associated with the portfolio of the Group was €206 million (31 December 2011: €208 million). Loans and valuations may be analysed as follows for those periods in which

valuations were undertaken:

–  –  –

The valuations in the table above differ from the values included in the consolidated balance sheet as at 31 December 2012 and 31 December 2011 due to the treatment under IFRS of land held under operating leases and development property.

As of 31 December 2012 LTV ratio of investment property worsened due to fall in the valuation of Millennium Plaza (Group’s most valuable investment property) as a result of the decrease in its occupancy ratio as at the end of the year as described on page 9.

LTV ratio of development property under construction improved significantly mainly as a result of the increase of the valuation of the currently constructed projects in Warsaw (Apartamenty przy Krasińskiego and Concept House).

As of 31 December 2012 LTV ratio of hotels and LTV ratio of other development property amounted to 65% and 94% respectively and remained unchanged as compared to 31 December 2011.

The gearing ratio is 72% (as presented in note 1.2 to the consolidated financial statements) based upon net debt as a percentage of total capital (net debt plus equity attributable to equity holders). The ratios remained at the similar levels as compared to 31 December 2011 (72%).

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Key changes in 2012 On 21 December 2012 Capital Art Apartments was granted a loan for the construction of the third stage of this successful project in Warsaw.

Under the agreement the bank extends a loan in a total amount not to exceed PLN 55 million in the following tranches:

a construction loan in an amount not to exceed PLN 52.3 million, and • a revolving VAT loan in an amount not to exceed PLN 3 million.

• This loan bears interest at the rate of the 1 M WIBOR, increased by a margin, paid on a monthly basis. The final

repayment date of the construction part of the loan will fall on the earlier of the following dates:

12 months after the last day of the construction period; or • 36 months after the date of first utilization.

•.

Update on current status The Group has 4 facilities that have been cross collateralised since February 2010 and as of 31 December 2012 are

presented as bank loans and overdrafts due within one year or on demand:

1. €61.4 million facility secured on the Millennium Plaza Building in Warsaw, Poland with a maturity date of 2016;

2. €3.9 million facility secured on the Ligetvaros Centre in Budapest, Hungary with a maturity date of 2021;

3. €12.9 million facility secured on the Voluntari land plot in Bucharest, Romania with a maturity date of December 2012;

4. €13.5 million facility secured on the Solaris land in Bucharest, Romania with a maturity date of December 2012.

Voluntari and Solaris land loans totaling €26.4 million with maturity date 31 December 2012 have not been paid and as a result the remaining loans (Millenium and Solaris) totaling €65.3 million had to be reclassified from non-current liabilities to current liabilities due to event of default in the cross- collateralisation agreement. The Group entered into discussion with the bank already in 2012, however only on 28 February 2013 the Group obtained from the bank a signed term-sheet to the cross collateralisation agreement based on which current facilities have been extended by 31 December 2015.

In the preparation of the consolidated financial statements for the year ended 31 December 2012, the directors have reclassified two additional loans totalling €18.9 million within the financial statements from non-current liabilities to current liabilities as bank loans and overdrafts due within one year or on demand, where covenant breaches or defaults on these loans arose. The Company is in dialogue with the banks and is discussing restructuring of these loans.

Currently the Group finalizes an understanding with the bank based on which one of the bank facilities amounting to €5.0 million is to be fully settled.

In addition, there are three loans that are classified as bank loans and overdrafts due within one year or on demand in

the amount of €19.6 million. Negotiations are ongoing with the banks on refinancing terms:

–  –  –

Revenue Total revenues for year ended 31 December 2012 were €43.1 million compared to €54.0 million for the year ended 31 December 2011. The Group’s principal revenue streams are from its hotel operations, property rental income and income from the sale of the residential apartments that the Group develops. As the Group maintains a diversified portfolio of real estate investments, seasonality or cyclicality of yielded income or results is also highly diversified.

Development Properties

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Sales are only recognised when apartments have been handed over to new owners with the full price of the apartment received by the Group. At this moment the economic risks and rewards are transferred to the new owner and in accordance with the Group’s accounting policy, the revenue and associated costs of these apartment sales are recognised in the income statement. Please note that for Concept House and Apartamenty przy Krasińskiego projects no sales and associated costs have been recognized in the income statement as these projects are still under construction.

The decrease in gross profit realised in the year ended 31 December 2012 as compared to the same period in 2011 is mainly a result of a lower number of apartments handed over in Platinum Towers and Capital Art Apartments, as well as a decrease in average sales price per sqm.

–  –  –

For Capital Art Apartments, for the year ended 31 December 2012, revenue of €6.0 million (31 December 2011:

€9.9 million) have been recognised on the sales of 37 apartments (31 December 2011: 76 apartments).

For Platinum Towers, for the year ended 31 December 2012, completed sales were represented by 5 apartments (31 December 2011: 59 apartments). This resulted in sales of €2.9 million being recognised in the income statement (31 December 2011: €11.4 million).

Property Rental

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Gross margin realized by the Property Rental decreased by 7% (i.e. €0.6 million). The significant increase of occupancy ratio of Millennium in the first three quarters of 2012 resulting in the higher turnover was utilized by increased energy costs and key tenant lost in the last quarter of 2012.

Hotel operations

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The hotel operations improved significantly mainly due to outstanding performance of Hilton hotel in Warsaw. EURO 2012 Football Championships that took place in Warsaw in June 2012 contributed to this success as well as effective restructuring of costs.

–  –  –

Cost of operations Cost of operations was €28.1 million in the year ended 31 December 2012, compared to €36.7 million in 2011. The decrease is principally due to lower number of apartments handed over in Platinum Towers and Capital Art Apartments as compared to 2011 offset by an increase in the electricity costs.

For Capital Art Apartments, for the year ended 31 December 2012, cost of apartments sold of €5.7 million (31 December 2011: €7.9 million) have been recognised on the sales of 37apartments (31 December 2011: 76 apartments).

For Platinum Towers, for the year ended 31 December 2012, completed sales were represented by 5 apartments (31 December 2011: 59 apartments). This resulted in cost of apartments sold €2.3 million being recognised in the income statement (31 December 2011: €8.4 million).

Administrative expenses

Administrative expenses declined by €1.3 million (i.e. by 14%) mainly due:

- €0.8 million lower property manager fees as a result of lower adjusted NAV (i.e. base of the property manager fee);

- €0.6 million irrecoverable VAT write off in 2011 (no write off in 2012).



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